Property investors 'exploiting' vulnerable with garage renovation 'trick'

The previous owner of this Manurewa home converted the garage into three "utility rooms".

Property speculators are converting cold, damp garages into so-called "utility rooms" where desperate families are sleeping - a practice investors say adds value but critics have described as "exploitation".

A Weekend Herald investigation found dozens of recent property listings where traders had lined and carpeted garages during renovation, some also adding walls to split the sheds into two.

Some were set up as a lounge and two bedrooms. Only one had a toilet in it - which did not have consent.

The spaces were marketed as utility rooms, not bedrooms, to avoid laws that define habitable spaces - laws which Auckland Council says it can use to prosecute, but rarely does because no one reports the problem.

Some real estate agents approached by the Weekend Herald readily acknowledged the trend as a kind of open secret in the market.

"You've got to remember there is demand for these properties. People have big families and they want them."

At open homes or in correspondence with the Weekend Herald, some agents said the conversions were not consented, but owners were using the garages as sleeping areas for extra family members, or as a rental for more cash.

"I don't see why you couldn't rent it out [as a bedroom]," one agent told a reporter via text message.

Another said: "People do it all the time, I'm not saying that's what you should do but that's what people do."

This home in Manurewa was sold in January 2019 as a four-bedroom home.

The previous owner of this Manurewa home converted the garage into three "utility rooms".

The garage has a large main room and two adjacent rooms. The seller said "if they choose to make it a bedroom that's entirely up to them". Since publication, the buyer has told the Herald he will use it for office space.

Some agents said while it was illegal to rent the rooms separately, as a landlord you could treat extra family members like "flatmates".

At one open home in Papatoetoe, an agent told the Weekend Herald the previous owner had done just that - rented a cluster of sheds at the back of the property for $300 a week.

It wasn't consented and wouldn't have met habitable standards, which say sleeping areas must be insulated and damp proof; and have adequate light and ventilation, among other factors.

Some speculators and owners spoken to by the Weekend Herald gave similar answers when questioned - it wasn't up to them what buyers did with the garages afterwards.

"If they choose to make it a bedroom that's entirely up to them," one investor said.

Another home in Māngere had a small room off the garage as a "utility room". The agent said it was not consented.

This is the inside shot of the room above. It should not have a bed in the room and should not be used for sleeping. The agent said it was "just for staging".

Businessman Tua Saseve, who openly advocated the practice to other investors at an Auckland Property Mentors conference last month, said he saw no issue with the trend.

"From our perspective - I'm a former valuer - it adds value," he said. "It adds extra space and function. What the vendor uses it for is up to them."

He said he never called the spaces bedrooms, and people often used the spaces as offices or storage, or as rumpus rooms.

Not all investors agreed the practice was a good idea. On a property investor chat group on Facebook, some members urged caution around renting the rooms as bedrooms, as landlords - including Auckland property manager Widharni Iskander who was censured last month - had been caught out before.

A before shot from a home in Manurewa shows the state of the garage before it was converted.

The garage is now a "utility room". A council check said it did not have consent to be slept in.

But others said it was a guaranteed way to get extra rent - particularly in South Auckland.

"Tenants will usually use it for sleeping and you can't really stop them and you wouldn't want to stop them anyway ... it's all part of trying to cope with the housing crisis," one investor wrote.

The Salvation Army's Campbell Roberts said converting garages for sleeping was an "appalling" practice and a cynical side effect of a housing shortage.

"If a family chooses to turn the garage into something to look after family that's one thing, but for someone to start profiteering off that is a different thing altogether," he said.

"People see an opportunity to make more money and it suddenly becomes alright and it's not alright. It shouldn't be a solution that we contemplate in New Zealand."

Major Campbell Roberts from the Salvation Army said there needed to be more houses built to prevent such desperation. Photo / File

Green Party co-leader Marama Davidson says converting garages is "exploitation" of the vulnerable. Photo / File

Roberts said the impact of poor, cold, damp housing on health was well known. In 2016 a Herald investigation found diseases linked to cold, damp, overcrowded homes were killing more New Zealand children than car crashes or drownings - 20 a year.

The Green Party's housing spokeswoman Marama Davidson said council rules were there to protect people, and deliberately getting around them to make money was "nothing short of exploitation".

"It is not acceptable for people to be sleeping in cold, uninsulated, poorly ventilated spaces – especially children," she said. "This practice preys on vulnerable people desperate for a roof over their head."

The Weekend Herald found "utility rooms" were most common in South Auckland, particularly in Māngere, Ōtara and Papakura. Those areas also have extremely high numbers of families entering emergency housing; and the highest number waiting for state housing.

An aerial shot of a house in Māngere East, Auckland, where the garage is clearly visible.

Initially, the Mangere house was uploaded to the real estate website advertising the garage as a sleepout.

The listing was later changed to say "utility room" with the agent saying using the term "sleepout" was a mistake.

Data showed the number of families entering emergency housing whose last residence was a "garage" doubled to June 2018, to 161.

Davidson said the practice again highlighted the need for a rental warrant of fitness, and more state housing.

Real Estate Institute chief Bindi Norwell said the organisation had heard anecdotal reports of some agents and property managers marketing utility rooms as an extra bedroom .

"However, we do not condone this behaviour."

A bedroom was required to be a minimum width of 1.8m, be at least 6sq m and not have any cooking appliance. "Habitable" rooms needed at least one window to provide adequate light.

Norwell added that agents could not mislead a customer or provide false information.

"REINZ does not support or condone illegal behaviour by its members be they real estate agents or property management members if it is in fact a clear breach of the Housing Improvement Regulations.

"What it does highlight however, is the shortage of rental accommodation across the country, and also the overall lack of housing supply in some areas, which is something that needs to be urgently address by local and central Government."

Auckland Council's manager of regulatory compliance Steve Pearce said if the council found the rooms being used as bedrooms it would prosecute. Just because there were ways of getting around the law didn't mean people should exploit them, he said.

In Pah Road, Papatoetoe, an illegal bathroom had been added to a collection of rundown sheds outside, along with three "utility rooms" that were freezing and damp.

An aerial shot of an Auckland house with the garage is clearly visible.

If investors were creating a place for people to live, they should be doing it with humanity, Pearce said.

"But if investors are shooting to make money by cutting corners then effectively we need to hold them to account."

The council did not know where to investigate without complaints, and he urged the public - neighbours, attendees at open homes, and families living in garages to come forward.

Pearce said investors should also come forward and talk to the council, as it was possible to make a garage legally habitable and it could advise on that.